According to many investment industry leaders, financial advisors in Canada are facing a significant business threat. As enormous wealth continues to transfer between generations—Manulife has estimated the figure at approximately $1 trillion between 2016 and 2026—advisors run the risk of losing long-standing client relationships when family assets pass from the wealth builder generation to their heirs.
The reason, as we noted in part one of this two-part mini series, is because some in the next generation will inevitably decide to blaze their own financial trail. They may choose to work with their own trusted advisors, perhaps leveraging contacts from their personal peer network. This could leave the financial planning and portfolio management firms that helped grow that wealth on the outside looking in.
But the challenge isn’t insurmountable. Advisors have an opportunity to retain the business of wealthy families across generations. Doing so takes a commitment to service, to understanding what matters most to a wealth builder’s heirs, along with a truly authentic approach. Perhaps most importantly, it takes a dedication to client engagement. Most advisors already maintain that high-touch approach, of course, but working with heirs often means broadening the scope of their financial advice.
That’s why one of the most effective ways to connect with their future clients is through philanthropy.
Not only does it help wealth builders create a lasting tradition of giving across their families, it builds bridges to Millennial and Generation Z wealth recipients who, as countless studies have shown, place a great degree of value in making a difference in the world around them. The question is: How?
One of the great features of philanthropy is that it’s relevant to any age group. Whether a benefactor is in their 80s or their grandchild is 8, they all have the ability to choose a cause that they’d like to support. The little ones will need parental guidance, of course, but the end result is the same. They get to experience what it feels like to give back and make a tangible difference in the world around them.
Advisors can incorporate heirs into a client’s giving strategy at any time. Some of our clients have created small donor advised funds of only a few thousand dollars for their grandchildren to help manage, for example. In other cases, children, teenagers or young adults are given lump sums to donate to charities that mean the most to them. Sometimes they simply help their parents or grandparents decide which charities to support in a given year. By being engaged and assisting in that process, advisors can help the next generation develop a passion for philanthropy early on.
The easiest way to build trust with a client is to work to understand their needs and goals, to be there when needed and to provide proactive advice. By not only managing their financial affairs, but also paying attention to their desire to be philanthropic and helping to nurture that passion, advisors can demonstrate a level of dedication and commitment that goes far beyond basic fiduciary duties to grow their wealth or to mitigate financial risk.
Use philanthropy as a financial teaching tool
Financial illiteracy is a challenge even for wealthier families. Just because you have a great deal of money, doesn’t always mean you fully understand how to manage it. In fact, in many cases, the children of wealth builders lack the tools to develop the often complex financial plans and wealth management strategies they need to maintain and grow that nest egg over time. That’s why they rely on their advisors for assistance. But what if those advisors turned to philanthropy as a means to enhance their clients’ wealth-management know-how, to keep them informed and engaged in their finances and deepen trusted relationships over time?
It’s widely know that one of the most effective ways to teach clients about wealth management is by giving them real-world funds to oversee. In some cases, families will allow future heirs to manage an investment portfolio containing a portion of their eventual inheritance, working with their advisor to understand how those investments are best managed and grown over time, and developing an appreciation for capital preservation.
A donor advised fund can offer similar benefits. By allowing a future inheritor to manage a Canada Gives Foundation account—even if it’s funded with a minimal sum—heirs can make grants to charities of their choosing, possibly help direct the growth of the funds in the account or even make long-term grant pledges to provide sustainable funding streams to their preferred causes as they work to maximize their philanthropic impact.
Understand what matters most to them
Finding out why the next generation wants to engage in philanthropy is important. Maybe they hope to make a difference in their local community, or take a broader ESG (environmental, social, corporate governance) approach, say, by making grants to organizations fighting climate change or for human rights.
Whatever the case, getting to know your future clients is not only a best practice to help them achieve their goals, but also helps you learn about what matters most to them. Regular in-person or virtual meetings (perhaps quarterly or semi-annually) and proactive check-ins can help glean an understanding of their current (and likely fast-evolving) interests, along with how you can best serve their needs.
In the end, philanthropy is one tool among many that advisors can use to build stronger relationships. But it’s a powerful one that appeals both to the financial and socially-conscious sensibilities of tomorrow’s clients—and it’s rewarding to be working in this space together.
The Canada Gives team